Facts Applications Decision

Facts

The defendants were the registered and beneficial owners of the vessel Malik Al Ashtar in the port of Malta. United Arab Shipping Company (UASC) was the registered ship manager of the vessel at the material time.(1)

The second intervener, OW Bunkers Middle East DMCC (OWB), was registered with the Dubai Multi Commodities Centre in the United Arab Emirates. OWB's main business was as a wholesaler of petroleum products, including the supply of bunkers to vessels calling at UAE ports. OWB had been in a contractual relationship with UASC for numerous purchases and the supply of bunkers to vessels managed by UASC, including the vessel at hand, at UAE ports.

Around October 9 2014 UASC placed an order with OWB for the purchase and delivery of 2,500 metric tonnes of bunkers to be delivered to the vessel on October 14 2014 at the Khor Fakkan Port in the United Arab Emirates for $1,310,774.03.

Around October 15 2014 OWB's bunker barge MT NILE delivered 2,468.5 metric tonnes of bunkers to the vessel.

On October 15 2014 OWB issued UASC an invoice for $1,310,774.03 for the delivery of the subject bunkers, payment of which was to be made to OWB by November 14 2014.

On November 7 2014 the defendants received a notice of lien dated November 7 2014 for the bunkers from plaintiff Vitol, wherein the defendants were notified of OWB's purchase order dated October 9 2014 and sales confirmation dated October 9 2014, which stated that the plaintiff (as the seller) had sold and delivered the subject bunkers to OWB (as the buyer) for $1,303,368.53.

The plaintiff contended that as the physical supplier, it owned the bunkers. Further, the plaintiff's notice of lien stipulated that it had exercised a lien over the bunkers, and that the defendants should pay the plaintiff and not OWB.

Through its London solicitors, the plaintiff sent an email dated November 12 2014 demanding payment of $1,303,368.53 allegedly owed by OWB, to be paid by the defendants to the plaintiff.

The defendants also received separate letters from the first intervener, OWB's chargee bank ING Bank NV Netherlands, giving notice to the defendants that all of OWB's rights in respect of the supply contract and payments due for the subject bunkers were assigned by way of security to the first intervener pursuant to an English omnibus security agreement dated December 19 2013.

The plaintiff subsequently commenced an in rem action in the Malaysian courts against the vessel, which was arrested at Port Klang, Selangor on February 16 2015.

Applications

The defendants applied to set aside or strike out the plaintiff's action on the basis that the plaintiff had wrongly brought its claim, as they had no contractual nexus with the plaintiff for the purchase and supply of the bunkers.

While the hearing for the defendants' application was pending, the interveners (ING and OWB) commenced a separate admiralty action in the Malaysian courts and arrested the vessel on June 21 2015 as security for their claim for the purchase price of the bunkers. The vessel was released on provision of fresh alternative security by the defendants.

The interveners were granted leave to intervene and applied for summary judgment pursuant to Order 14, Rule 1 and Order 27, Rule 3 of the Rules of Court 2012. Vitol was granted leave to intervene in the ING suit.

The court granted summary judgment in the ING suit in favour of the interveners against the defendants for the full purchase price of the subject bunkers with interest and costs.

In light of the above facts, two applications were then filed before the Kuala Lumpur High Court:

  • the plaintiff's application to amend its statement of claim; and
  • the defendants' application to set aside the writ in rem and warrant of arrest or, alternatively, to strike out the writ in rem and the statement of claim, as amended, together with damages and/or expenses incurred.

Application to amend statement of claim The plaintiff applied to amend its statement of claim to include Clause L4 of OWB Group's terms and conditions, which bound the defendants and OWB by Vitol's general terms and conditions for the supply of the subject bunkers. The plaintiff sought a declaration that it had lawful ownership and title to the bunkers and was entitled to costs therein.

The defendants and interveners were of the view that the proposed amendment was a tactical manoeuvre to avoid having the plaintiff's case struck out.

The court agreed with the defendants and interveners, holding as follows:

  • The crux of the defendants' position was that there was no contractual relationship between the plaintiff and the defendants.
  • The relevant contract for the subject bunkers was at all times between the defendants and OWB.
  • OWB, which had a direct contractual nexus with the defendants, was entitled to the price for and title to the bunkers.
  • The plaintiff's argument regarding the title of the subject bunkers in the ING suit was a "non-starter" and the plaintiff – in order to avoid having its statement of claim and writ struck out – sought to take advantage of the judgment in Canpotex Shipping Services Ltd v Marine Petrobulk(2) two months after it was issued and after judgment was granted in the ING suit to include completely new causes of action.
  • The proposed amendments were meant to tailor the claim to fit the judgment in Canpotex; hence, the addition of statements was meant to establish a direct contractual relationship between the plaintiff and the defendants and a contractual lien over the bunkers.
  • This was not the basis on which the vessel was arrested.

The original pleadings were founded on grounds of title, conversion and interference. However, the affidavit for the warrant of arrest alleged only a cause of action for the conversion of the bunkers by the defendant. The plaintiff sought to include two substantially new direct contractual claims via Clause L4 of the OWB Group's terms and conditions and a contractual lien. In doing so, it sought to make the defendants party to the Vitol-OWB contract and to establish a direct contractual claim by the plaintiff against the defendant, in accordance with Canpotex.

The court found that the plaintiff's application was made in bad faith, as the basis of invoking the admiralty jurisdiction was different from what was asked. As such, the application was dismissed with costs.

Application to set aside the writ in rem and warrant of arrest In respect of admiralty cases, the Singapore Court of Appeal had previously held in the case of the Bunga Melati 5(3) that there were two ways in which an action could be said to be unsustainable:

  • legally unsustainable – if "it may be clear as a matter of law at the outset that even if a party were to succeed in proving all the facts that he offers to prove he will not be entitled to the remedy that he seeks"; or
  • factually unsustainable – if it is "possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance, [for example, if it is] clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based".

Decision

In considering the defendants' application, the court deliberated on the following issues individually:

  • Agency – was OWB contracting on behalf of the defendants when it entered into the contract with the plaintiff for the sale of the bunkers (Vitol-OWB contract)?
  • Conversion – did the plaintiff have title over the bunkers and, by using the bunkers, had the defendants converted them?
  • Unjust enrichment – were the defendants liable to the plaintiff for unjust enrichment?
  • Direct contract (proposed amendment) – did the plaintiff have a direct contract with the defendants via Clause L4?
  • Lien (proposed amendment) – did the plaintiff have a lien over the bunkers?

In addressing the above issues, the court found as follows.

Agency relationship The court found that there was no evidence that the defendants and OWB had ever agreed that OWB would contract on the defendants' behalf when OWB entered into the Vitol-OWB contract. In particular, there was no document conferring actual authority on OWB to contract on behalf of the defendants. Further, there were no representations by the defendants that OWB had actual or apparent authority to enter into any agreements on its behalf.

Conversion claim The plaintiff sought to rely on Clause 11.2 of its general terms and conditions to impose a contractual lien over the bunkers.

The conversion argument had previously been raised in PST Energy Shipping LLC v OW Bunker Malta Limited "Res Cogitans",(4) which involved a clause similar to that of Clause 11.2. In PST Energy Shipping Judge Males held that, despite the presence of such a clause, the owners were not liable to the physical supplier for the tort of conversion, as they had consented to the use of the bunkers by the vessel. The physical suppliers knew that the bunkers were for consumption by the vessel.

In the case at hand, the court was of the view that the plaintiff had known and accepted that OWB was a trader, not an end user, and that it would contract with the owners of the vessel to which the bunkers would be delivered. Further, it held that the contract with the owners would authorise them, expressly or by necessary implication, to consume the bunkers immediately. As such, the court held that the defendants were not liable to the plaintiff as the physical supplier for the tort of conversion, as the plaintiff had consented to the use of the bunkers by the vessel.

Further, in granting summary judgment in the ING suit in favour of the interveners, the court found that there was a direct contractual nexus between OWB and the defendants and that the plaintiff had no claim in respect of the title to the bunkers. If the plaintiff had no title to the bunkers, then it could not claim for conversion.

Based on this, the court agreed with the defendants and interveners that the plaintiff's claim in the tort of conversion was both legally and factually unsustainable.

Unjust enrichment claim The court found that the plaintiff's sales order confirmation and tax invoice was clear evidence that it had the intention to contract directly with OWB only, and had indeed contracted for the supply of the bunkers with OWB and not the defendants.

Therefore, the plaintiff had supplied the bunkers pursuant to its contract with OWB and had no contract with the defendants. This meant that the plaintiff should look only to OWB for payment under its contractual bargain.

Direct contract The plaintiff relied entirely on Clause L4 of the OWB Group's terms and conditions to claim that the defendants were jointly liable with OWB to pay for the bunkers, premised on Canpotex.

The court held that there was nothing to show that the defendants had agreed to be bound by the plaintiff's terms when they entered into a direct contract for supply of the bunkers with OWB. Further, the defendants neither agreed nor authorised OWB to be bound by the plaintiff's terms when OWB entered into an agreement with the plaintiff for the supply of the same bunkers. At all material times, it was not in dispute that the defendants were unaware of any contract for sale of the same bunkers between the plaintiff and OWB which incorporated the plaintiff's terms.

The court was of the view that Canpotex was Canadian in origin and had not been addressed or accepted by the English courts and therefore did not reflect the English position on the matter, nor was it binding on the Malaysian courts.

In respect to Clause L4(a), the court found that there was no document or evidence which indicated any insistence by the plaintiff for the defendants to be bound by its general terms and conditions at the time that the OWB-Malik contract was entered into.

Further, the court held that the plaintiff was never a party to the OWB-Malik contract, nor were the defendants a party to the Vitol-OWB contract. As such, the plaintiff was barred by the doctrine of privity of contract from enforcing or relying on the OWB-Malik contract. In support of its finding, the court referred to Bacom Enterprises Sdn Bhd v Jong Chuk,(5) where the Court of Appeal restated the position under English law in Scruttons Ltd v Midland Silicones Ltd.(6)

Lien over vessel or bunkers The court was of the view that since there was no direct contract between the plaintiff and the defendants, a contractual lien did not arise. Further, the court held that a lien gave no right to payment – only a right to retain possession of the bunkers until the debt was paid by OWB. The plaintiff had no lien over, or right to, the debt payable by the defendants to OWB.

In respect of maritime lien, in MV HUA HONG SATU,(7) the presiding judge stated as follows:

"The maritime lien is a concept peculiar to maritime law. As regards certain maritime claims the ship or other property in respect of which the claim arises is charged with that claim, the maritime lien being that "charge", so that the maritime lien can be enforced by an action in rem in whosoever's hands the property may be. The classic definition of a maritime lien was provided by Sir John Jervis in The 'Bold Buccleugh' where he said: Having its origin in the rule of the civil law, a maritime lien is well defined by Lord Tenterden, to mean a claim or privilege upon a thing to be carried into effect by legal process and Mr. Justice Story explains that process to be a proceeding in rem and adds, that wherever a lien of claim is given upon the thing, then the Admiralty enforces it by a proceeding in rem, and indeed is the only court competent to enforce it... This claim or privilege travels with the thing into whosoever's possession it may come. It is inchoate from the moment the claim or privilege attaches, and, when carried into effect by legal process by a proceeding in rem, relates back to the period when it first attached. There are numerous other judicial definitions in similar terms. The claims which give rise to maritime liens. Only a limited class of maritime liens are recognised in English law. In The 'Bold Buccleugh' four categories were listed: (i) damage done by a ship; (ii) salvage; (iii) seamen's wages; (iv) bottomry and respondentia. To these must be added a fifth, statutory category: (v) Master's wages and disbursements."

In applying the above decision, the court held that there was no maritime lien in rem available to the supplier of bunkers in either English or Malaysian law.

After considering the issues set out above, the court allowed the defendants' application to strike out the plaintiff's writ and statement of claim with costs.

For further information on this topic please contact Rajasingam Gothandapani at Shearn Delamore & Co by telephone (+60 3 2070 0644) or email (rajasingam@shearndelamore.com). The Shearn Delamore & Co website can be accessed at www.shearndelamore.com.

Endnotes

(1) Kuala Lumpur High Court, Vitol Asia PTE LTD v The Owners of the Ship or Vessel Malik Al Ashtar.

(2) [2015] FC 1108.

(3) [2012] SGCA 46.

(4) [2015] EWHC 2022 (confirmed on appeal in [2015] EWCA Civ 1058).

(5) [2011] 5 MLJ 820.

(6) [1962] AC 446.

(7) [1999] 6 CLJ 197

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